Joseph Schumpeter

Joseph Schumpeter sees the process of “creative destruction” as the essential dynamic of capitalism. Entrepreneurs turn the market upside-down with their innovations, forcing the adoption of new patterns of production and consumption. Schumpeter, in contrast to the orthodox neoclassical economists, has little use for the idealizations of “perfect competition,” or for the putative rationality of the free market. He ridicules the notion of market equilibrium, and sees little value in the efficiency that results when firms selling similar products compete on the basis of price, performance, and marginal advantage. Schumpeter prefers monopolies and oligopolies, with their ability to realize economies of scale, to standardize production, and to take advantage of their control of the market in order to nurture innovations that might not be immediately profitable.

Schumpeter is the only right-wing, pro-capitalist economist of note to give Marx his due as a thinker. His theory of “creative destruction” is an expansion of Marx’s insight that capitalism can only work by continually revolutionizing the relations of production. For Schumpeter, the competition that really matters –- in contrast to mere price competition –- is that which a given product faces “from the new commodity, the new technology, the new source of supply, the new type of organization.” Even monopolies can collapse overnight when faced with this sort of unexpected shift. The “ever-present threat” of innovation from outside compels monopolies and oligopolies to stay on full alert and seek to expand their business, rather than simply raising prices and restricting supply. The neoclassical notion of equilibrium is nonsense, because capitalism is “an evolutionary process. . . [that] not only never is but never can be stationary.” Schumpeter clearly means “evolutionary” here in a Darwinian sense. Capitalism, he writes, is a “process of industrial mutation – if I may use that biological term – that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. Destruction is the essential fact about capitalism.”

There’s an irony here that needs unpacking. The neo-Darwinian synthesis in contemporary biology is grounded in a vision of harsh competition under conditions of scarcity. Yet it emphasizes stability and continuity rather than revolution and destruction. It assumes that organisms are basically conservative. It tends to regard the organism’s external environment (or the “fitness landscape” defined by that environment) as essentially stable; it underestimates both the mutability of the environment, and the self-reflexive feedback effects that organisms have on their own environments. Instead, it calculates Evolutionarily Stable Strategies, using equilibrium models that are borrowed from neoclassical economics, and ultimately from 19th-century, pre-quantum and pre-complexity, physics. Schumpeter’s biological analogy, to the contrary, involves catastrophic destructions and dislocations. Stability is only a relative and temporary condition, a lull in between moments of radical mutation. Schumpeter even seems to anticipate the Eldredge-Gould theory of punctuated equilibrium: “these revolutions are not strictly incessant; they occur in discrete rushes that are separated from each other by spans of comparative quiet. The process as a whole works incessantly, however, in the sense that there always is either revolution or absorption of the results of revolution, both together forming what are known as business cycles.” In biology, it can at least be argued that punctuated equilibrium does not really contradict Darwinian gradualism, and can be folded into the neo-Darwinian synthesis. But in Schumpeter’s case, no such reconciliation with the neoclassical model is possible. The irony is that, during the Internet bubble of the late 1990s, Schumpeter’s celebration of entrepreneurship and “creative destruction” became popular right alongside the neoliberal faith in perfectly rational and efficient markets –- despite the radical incompatibility of these viewpoints.

Schumpeter refuses to minimize the dislocations and inequities caused by the process of creative destruction: “any pro-capitalist argument must rest on long-term considerations. In the short run, it is profits and inefficiencies that dominate the picture. In order to accept his lot, the leveler or the chartist of old would have had to comfort himself with hopes for his great-grandchildren. In order to identify himself with the capitalist system, the unemployed of today would have completely to forget his personal fate and the politician of today his personal ambition.” This argument is remarkably bracing and contrarian, especially in contrast to the usual neoliberal paeans to the perfection of the market. Schumpeter is indeed arguing that “trickle- down” economics works, that a rising tide ultimately lifts all boats, and that the immiseration of the British working class noted by Engels in 1844 was in the long run not a bad thing, because it led to a somewhat higher standard of living for British workers a hundred years later. But at least he doesn’t tell me – as Thomas Friedman does – that I myself will be made happier by living in a world without any social guarantees, and that I ought to feel grateful for the opportunity to raise my productivity by working longer hours for less pay.

There is reason to wonder, of course, whether the distant future that Schumpeter promises to my great-grandchildren will ever actually arrive. For if capitalism survives, the cycles of creative destruction will still be going on then too, and the promise of prosperity for all will continue to be deferred indefinitely. If, however, as Schumpeter fears, capitalism itself were to “become atrophic” and disappear, then there would no longer be any innovation or material progress at all: “human energy would turn away from business. Other than economic pursuits would attract the brains and provide the adventure.” I must say that such a prospect seems quite delightful to me; but Schumpeter regards it with unqualified disgust. Indeed, he scarcely distinguishes between the inertia of bureaucratic socialism, which he loathes, and the actual fulfillment of capitalism’s long-deferred promises of abundance. Nothing seems worse to him than “a state of satiety” in which “the wants of humanity might some day be so completely satisfied that little motive would be left to push productive effort still further ahead.” And the only thing that can rescue us from such a state, he adds, is the infinite restlessness of desire itself: “as higher standards of life are attained, these wants automatically expand and new wants emerge or are created. . . particularly if we include leisure among consumers’ goods” (131). This is again a remarkable piece of contrarianism. Usually, social critics (like Stuart Ewen) attack capitalism for colonizing leisure, and for soliciting artificial desires; while defenders of capitalism (like Virginia Postrel) indignantly reject these charges, and insist that the market gives us everything we truly want. But Schumpeter has the perversity to celebrate capitalism precisely for its creation of artificial “new wants,” and for its commodification of leisure time.

All this suggests that Schumpeter values the process of creative destruction itself, more than he does any long-term prosperity that might arise therefrom. Indeed, one might wonder whether he cares about prosperity at all. His glorification of capitalism centers on the heroic image of the entrepreneur; and this image, like the idea of “creative destruction” itself, owes far more to Nietzsche than it does to Adam Smith. Schumpeter’s entrepreneur is a charismatic figure, whose injection of new energy rescues the capitalist system from its otherwise fatal entropic tendencies (I’ve benefitted for this point from some suggestions by Douglas Collins). His deeds “lie outside of the routine tasks which everybody understands.” The entrepreneur, like the man of Nietzsche’s fantasized master race, acts spontaneously, without reflection or resentment. “The function of entrepreneurs,” Schumpeter says, “is to reform or revolutionize the pattern of production”: this function “does not essentially consist in either inventing anything or otherwise creating the conditions which the enterprise exploits. It consists in getting things done” despite massive opposition. In all these ways, Schumpeter’s entrepreneur is not really a bourgeois figure at all, but a mythical aristocratic one.

Conversely, Schumpeter’s picture of the “state of satiety,” of a socialist world without entrepreneurs to shake things up, is just like Nietzsche’s vision of the Last Man: “One still works, for work is a form of entertainment. But one is careful lest the entertainment be too harrowing. One no longer becomes poor or rich: both require too much exertion. Who still wants to rule? Who obey? Both require too much exertion. . . We have invented happiness, say the last men, and they blink.” Schumpeter as for Nietzsche, socialism is basically bourgeois conformism and complacency writ large. Schumpeter’s analysis of the dynamics of capitalism traces the way that the very success of heroic entrepreneurship leads to the creation of an atmosphere in which entrepreneurship is no longer valued, and in which modishly left-wing intellectuals come to increasing prominence. By “intellectuals,” Schumpeter means people like me: “people who wield the power of the spoken and written word. . . [in] the absence of direct responsibility for practical affairs,” and who therefore have the leisure to despise capitalist values despite (or because of) the fact that they are themselves the beneficiaries –- and indeed the product –- of those very values.

Schumpeter holds intellectuals in contempt, because they make judgments, and seek to legislate for society at large, without being accountable for the practical consequences of these judgments. In other words, the intellectuals’ judgments are contemplative, disinterested, and therefore –- in Kantian terms –- aesthetic. Schumpeter, no less than many Marxists, equates aestheticism with passive consumption, detached from any involvement in the actual processes of production. Schumpeter’s intellectual, like Nietzsche’s Last Man, is a mere consumer: someone who lives under the rule of universal equivalence, who lacks even the desire to make a difference. Who lacks desire altogether, in short, and who is incapable of an act of creative destruction.

But the impasse of Schumpeter’s own thought is a mirror image of the malady he diagnoses in his enemies. Creative destruction comes to grief over the fact that its outcome is just more commodities, more fodder for the regime of universal equivalence. All charisma is quickly routinized. The heroic individualism that Schumpeter glorifies is dissolved by its very success. Nobody is going to confuse Sam Walton, or Bill Gates, with the Übermensch. If Schumpeter’s bitter prophecy of capitalism’s decline has not come to pass, this is because such a “decline” is in fact the normative state of actually existing, and fully triumphant, capitalism.

Joseph Schumpeter sees the process of “creative destruction” as the essential dynamic of capitalism. Entrepreneurs turn the market upside-down with their innovations, forcing the adoption of new patterns of production and consumption. Schumpeter, in contrast to the orthodox neoclassical economists, has little use for the idealizations of “perfect competition,” or for the putative rationality of the free market. He ridicules the notion of market equilibrium, and sees little value in the efficiency that results when firms selling similar products compete on the basis of price, performance, and marginal advantage. Schumpeter prefers monopolies and oligopolies, with their ability to realize economies of scale, to standardize production, and to take advantage of their control of the market in order to nurture innovations that might not be immediately profitable.

Schumpeter is the only right-wing, pro-capitalist economist of note to give Marx his due as a thinker. His theory of “creative destruction” is an expansion of Marx’s insight that capitalism can only work by continually revolutionizing the relations of production. For Schumpeter, the competition that really matters –- in contrast to mere price competition –- is that which a given product faces “from the new commodity, the new technology, the new source of supply, the new type of organization.” Even monopolies can collapse overnight when faced with this sort of unexpected shift. The “ever-present threat” of innovation from outside compels monopolies and oligopolies to stay on full alert and seek to expand their business, rather than simply raising prices and restricting supply. The neoclassical notion of equilibrium is nonsense, because capitalism is “an evolutionary process. . . [that] not only never is but never can be stationary.” Schumpeter clearly means “evolutionary” here in a Darwinian sense. Capitalism, he writes, is a “process of industrial mutation – if I may use that biological term – that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. Destruction is the essential fact about capitalism.”

There’s an irony here that needs unpacking. The neo-Darwinian synthesis in contemporary biology is grounded in a vision of harsh competition under conditions of scarcity. Yet it emphasizes stability and continuity rather than revolution and destruction. It assumes that organisms are basically conservative. It tends to regard the organism’s external environment (or the “fitness landscape” defined by that environment) as essentially stable; it underestimates both the mutability of the environment, and the self-reflexive feedback effects that organisms have on their own environments. Instead, it calculates Evolutionarily Stable Strategies, using equilibrium models that are borrowed from neoclassical economics, and ultimately from 19th-century, pre-quantum and pre-complexity, physics. Schumpeter’s biological analogy, to the contrary, involves catastrophic destructions and dislocations. Stability is only a relative and temporary condition, a lull in between moments of radical mutation. Schumpeter even seems to anticipate the Eldredge-Gould theory of punctuated equilibrium: “these revolutions are not strictly incessant; they occur in discrete rushes that are separated from each other by spans of comparative quiet. The process as a whole works incessantly, however, in the sense that there always is either revolution or absorption of the results of revolution, both together forming what are known as business cycles.” In biology, it can at least be argued that punctuated equilibrium does not really contradict Darwinian gradualism, and can be folded into the neo-Darwinian synthesis. But in Schumpeter’s case, no such reconciliation with the neoclassical model is possible. The irony is that, during the Internet bubble of the late 1990s, Schumpeter’s celebration of entrepreneurship and “creative destruction” became popular right alongside the neoliberal faith in perfectly rational and efficient markets –- despite the radical incompatibility of these viewpoints.

Schumpeter refuses to minimize the dislocations and inequities caused by the process of creative destruction: “any pro-capitalist argument must rest on long-term considerations. In the short run, it is profits and inefficiencies that dominate the picture. In order to accept his lot, the leveler or the chartist of old would have had to comfort himself with hopes for his great-grandchildren. In order to identify himself with the capitalist system, the unemployed of today would have completely to forget his personal fate and the politician of today his personal ambition.” This argument is remarkably bracing and contrarian, especially in contrast to the usual neoliberal paeans to the perfection of the market. Schumpeter is indeed arguing that “trickle- down” economics works, that a rising tide ultimately lifts all boats, and that the immiseration of the British working class noted by Engels in 1844 was in the long run not a bad thing, because it led to a somewhat higher standard of living for British workers a hundred years later. But at least he doesn’t tell me – as Thomas Friedman does – that I myself will be made happier by living in a world without any social guarantees, and that I ought to feel grateful for the opportunity to raise my productivity by working longer hours for less pay.

There is reason to wonder, of course, whether the distant future that Schumpeter promises to my great-grandchildren will ever actually arrive. For if capitalism survives, the cycles of creative destruction will still be going on then too, and the promise of prosperity for all will continue to be deferred indefinitely. If, however, as Schumpeter fears, capitalism itself were to “become atrophic” and disappear, then there would no longer be any innovation or material progress at all: “human energy would turn away from business. Other than economic pursuits would attract the brains and provide the adventure.” I must say that such a prospect seems quite delightful to me; but Schumpeter regards it with unqualified disgust. Indeed, he scarcely distinguishes between the inertia of bureaucratic socialism, which he loathes, and the actual fulfillment of capitalism’s long-deferred promises of abundance. Nothing seems worse to him than “a state of satiety” in which “the wants of humanity might some day be so completely satisfied that little motive would be left to push productive effort still further ahead.” And the only thing that can rescue us from such a state, he adds, is the infinite restlessness of desire itself: “as higher standards of life are attained, these wants automatically expand and new wants emerge or are created. . . particularly if we include leisure among consumers’ goods” (131). This is again a remarkable piece of contrarianism. Usually, social critics (like Stuart Ewen) attack capitalism for colonizing leisure, and for soliciting artificial desires; while defenders of capitalism (like Virginia Postrel) indignantly reject these charges, and insist that the market gives us everything we truly want. But Schumpeter has the perversity to celebrate capitalism precisely for its creation of artificial “new wants,” and for its commodification of leisure time.

All this suggests that Schumpeter values the process of creative destruction itself, more than he does any long-term prosperity that might arise therefrom. Indeed, one might wonder whether he cares about prosperity at all. His glorification of capitalism centers on the heroic image of the entrepreneur; and this image, like the idea of “creative destruction” itself, owes far more to Nietzsche than it does to Adam Smith. Schumpeter’s entrepreneur is a charismatic figure, whose injection of new energy rescues the capitalist system from its otherwise fatal entropic tendencies (I’ve benefitted for this point from some suggestions by Douglas Collins). His deeds “lie outside of the routine tasks which everybody understands.” The entrepreneur, like the man of Nietzsche’s fantasized master race, acts spontaneously, without reflection or resentment. “The function of entrepreneurs,” Schumpeter says, “is to reform or revolutionize the pattern of production”: this function “does not essentially consist in either inventing anything or otherwise creating the conditions which the enterprise exploits. It consists in getting things done” despite massive opposition. In all these ways, Schumpeter’s entrepreneur is not really a bourgeois figure at all, but a mythical aristocratic one.

Conversely, Schumpeter’s picture of the “state of satiety,” of a socialist world without entrepreneurs to shake things up, is just like Nietzsche’s vision of the Last Man: “One still works, for work is a form of entertainment. But one is careful lest the entertainment be too harrowing. One no longer becomes poor or rich: both require too much exertion. Who still wants to rule? Who obey? Both require too much exertion. . . We have invented happiness, say the last men, and they blink.” Schumpeter as for Nietzsche, socialism is basically bourgeois conformism and complacency writ large. Schumpeter’s analysis of the dynamics of capitalism traces the way that the very success of heroic entrepreneurship leads to the creation of an atmosphere in which entrepreneurship is no longer valued, and in which modishly left-wing intellectuals come to increasing prominence. By “intellectuals,” Schumpeter means people like me: “people who wield the power of the spoken and written word. . . [in] the absence of direct responsibility for practical affairs,” and who therefore have the leisure to despise capitalist values despite (or because of) the fact that they are themselves the beneficiaries –- and indeed the product –- of those very values.

Schumpeter holds intellectuals in contempt, because they make judgments, and seek to legislate for society at large, without being accountable for the practical consequences of these judgments. In other words, the intellectuals’ judgments are contemplative, disinterested, and therefore –- in Kantian terms –- aesthetic. Schumpeter, no less than many Marxists, equates aestheticism with passive consumption, detached from any involvement in the actual processes of production. Schumpeter’s intellectual, like Nietzsche’s Last Man, is a mere consumer: someone who lives under the rule of universal equivalence, who lacks even the desire to make a difference. Who lacks desire altogether, in short, and who is incapable of an act of creative destruction.

But the impasse of Schumpeter’s own thought is a mirror image of the malady he diagnoses in his enemies. Creative destruction comes to grief over the fact that its outcome is just more commodities, more fodder for the regime of universal equivalence. All charisma is quickly routinized. The heroic individualism that Schumpeter glorifies is dissolved by its very success. Nobody is going to confuse Sam Walton, or Bill Gates, with the Übermensch. If Schumpeter’s bitter prophecy of capitalism’s decline has not come to pass, this is because such a “decline” is in fact the normative state of actually existing, and fully triumphant, capitalism.

3 thoughts on “Joseph Schumpeter”

aesthetic disinterest, “affectless gaze”, that seems like a naive view of intellectual programs. it actually sounds like relativist critiques (Feyerabend).
i think modishly leftist intellectuals do want things like fame, glory, and the status of hipness as trophies for their style, their preferred authors, their favourite arguments.
super excellent post.

I did not have a chance to see this earlier text you wrote re zizek and deleuze. in any event, anyone who thinks deleuze was mislead, consciously or anyother way by Felix is just dead wrong. ANd old Zizek is dead wrong. And boring. Best to all lines of flight and schizo analogues.

_ Perhaps I was harsh on Zizek, he does write interesting work in his own right. I was just flabbergasted that he would try to sort of pry apart the wonderous machine of Guattari Deleuze. Gary Genosko has written a book Aberrant Guattari that was more interesting and did not negate or try to cancel out the Guattari side of the equation re D&G. have a good day.